Federal regulators say they won’t be swayed by a last-ditch effort by industry groups representing lenders to postpone Jan. 1 implementation of standardized mortgage loan disclosure forms and procedures that are intended to help consumers comparison shop.
The Department of Housing and Urban Development put forward the proposed changes to the Real Estate Settlement Procedures Act (RESPA) in March 2008 and issued a final rule in November after a public comment period that was extended at the industry’s request.
The final rule, which has withstood a legal challenge by the National Association of Mortgage Brokers, includes a new standardized good faith estimate (GFE) and HUD-1 settlement statement, which restrict changes to estimated loan origination and settlement services charges (see story).
All told, the industry will have had 14 months to prepare for the rule changes by the time they take effect next year, Federal Housing Commissioner David Stevens said Thursday in a letter to industry groups denying a request for a reprieve.
Industry groups, citing the potential for "widespread consumer confusion, crippling market dysfunction, and a strong possibility of an imminent litigation morass," this week wrote Stevens and Housing Secretary Shaun Donovan to ask for an extension of a transition period, currently in effect, during which compliance with the new RESPA rules is optional.
Since publication of the final rule last fall, lenders, mortgage brokers and settlement services providers have spent "tens of thousands" of man-hours to prepare for implementation of the new rules, industry groups said in a lengthy letter to the Department of Housing and Urban Development (HUD).
The rule change has "far-reaching implications," the groups said, which make "enormous changes to business practices, systems, processes, and … the very infrastructure of consumer mortgage lending."
HUD’s attempts to nail down details of how the RESPA rule changes will be applied, through a series of responses to "Frequently Asked Questions" ("New RESPA Rule FAQs") HUD began publishing in August, have only complicated the process of complying with them, industry groups said.
The interpretation of the final rule in the FAQs could, for instance, discourage lenders from working with mortgage brokers or helping consumers shop for settlement services like title insurance, the groups said — thwarting regulators’ stated intention of promoting competition.
Lenders may also decide they will no longer issue preapproval letters to borrowers, the groups claimed, because it is unclear if they can deliver a GFE, charge an application fee, and process an application before they are given a property address.
Stevens told the industry groups that HUD "is acutely aware of the procedural concerns, timing constraints and ancillary costs attributable to the implementation of these new regulatory requirements and the issues they raise for you members." …CONTINUED
HUD has posted guidance on 216 FAQs, responded to more than 200 individual phone and e-mail inquires, and held 40 speaking engagements with industry groups, he said, and is developing about two dozen follow-up FAQs for posting.
"To the the extent that your letter raises questions that have not yet been answered, we will respond to them expeditiously and add these responses to the FAQs," Stevens said.
Industry groups say that’s part of the problem — that HUD is still providing new information on how to interpret the rule changes as the deadline for implementing them approaches.
But Stevens called it "imperative" that the rule be "fully operational on schedule," in order to restore consumer confidence at "a critical time for the United States housing and housing finance markets."
The National Association of Realtors and American Land Title Association — which had been critical of the RESPA rule changes when they were proposed — now support implementation on Jan. 1, Stevens said.
Wells Fargo Home Mortgage executives also wrote HUD this week to say they are opposed to a delay in implementation because the company is already committed to becoming compliant on Jan. 1 and would be at a competitive disadvantage if other lenders are allowed to opt out.
"We have already programmed the mandated RESPA changes into over 40 computer systems and have no choice but to proceed with implementation of the new forms" on Jan. 1, Wells Fargo Home Mortgage executives said. "Due to the complexity of the changes and the enormous expenditure of time and resources associated with programming, it is impossible for us to postpone this implementation."
Other lenders would likely face the same technological and competitive obstacles if the deadline is extended, Wells Fargo executives said.
"To avoid marketplace disarray and consumer confusion, all lenders should be operating under the same set of rules and HUD regulatory interpretations," the letter concluded.
While HUD and the Obama administration are standing behind RESPA rule changes initiated by the Bush administration, there’s still a chance Congress will intervene.
Rep. Judy Biggert — an Illinois Republican who played a leading role in derailing a previous attempt at overhauling RESPA five years ago — has drafted an amendment to a pending bill, HR 3126, that would delay implementation of the new RESPA rule "for a reasonable amount of time," industry groups said in another letter to leaders of the House Financial Services Committee.
Last year, before HUD issued its final RESPA rule, more than 240 of members of the House of Representatives signed a letter urging HUD to withdraw its proposed RESPA changes and work with the Federal Reserve on simplified disclosure forms that meet both RESPA and Truth in Lending Act (TILA) requirements.
This year, Biggert and Rep. Ruben Hinojosa, D-Texas, successfully introduced an amendment to HR 1728 — a bill targeted at predatory lending practices — which would delay implementation of HUD’s RESPA rule changes for one year. Although the bill was approved by the house on May 7 in a 300-114 vote, it was was referred to the Senate Banking Committee a few days later and has yet to receive a hearing. …CONTINUED
Biggert’s planned amendment to HR 3126 is more likely to get a hearing in the Senate, since that bill was introduced by Rep. Barney Frank, D-Mass., to create a Consumer Financial Protection Agency along the lines proposed by the Obama administration.
HR 3126 already includes some RESPA provisions, including language that would transfer responsibility for enforcement RESPA to the new agency, and instructing it to draw up a new uniform mortgage disclosure form that would meet both RESPA and TILA requirements as the lending industry has requested.
If Congress doesn’t intervene and HUD’s RESPA rule changes are implemented Jan. 1, it remains to be seen whether the industry’s warnings about the potential for unintended consequences are warranted.
In their letter to HUD, industry groups representing lenders said it is unlikely lenders will continue processing loan preapprovals — the first step for many consumers in the house hunting process — unless HUD issues further guidance on how the new RESPA rules apply.
Under the new RESPA rule, the only charge lenders are allowed to assess in preparing a GFE is for a credit report, the groups said. It’s not clear if the RESPA rules allow lenders to generate preapproval letters before delivering a GFE. Loan originators need to know whether they can deliver a GFE and charge an application fee before they are supplied with an address, and then revise the GFE once they are provided with an address, industry groups said.
But HUD maintains that the RESPA rule does not address preapprovals, which are governed by regulations that are enforced by the Federal Reserve.
Industry groups also argue that HUD’s interpretation of the new rules will discourage lenders from providing borrowers with lists of third-party settlement services providers, or that such lists will exclude small companies.
In a recent Inman News column, ClosingCorp Inc. CEO Anthony Farwell made a similar point, saying the final rule encourages lenders to supply only short lists of service providers with whom they regularly work. Lenders will keep the lists short to guarantee that estimates on the GFE are within the required 10 percent of the final cost, even though those estimates may be higher than local rates, he said.
"That does not foster genuine consumer choice," Farwell said. "Unless they are encouraged to do their homework, consumers will never know whether they are getting a good deal. Consumers must be educated, but the new rules don’t do so. In this regard, the government’s RESPA reform has failed."
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